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Home My WebLink AboutAgenda - Mail Packet - 7/19/2016 - Council Finance Committee & Ura Finance Committee- Agenda For July 18, 2016 Including Year End Audit 2015Council Finance Committee & URA Finance Committee Agenda Planning Calendar 2016 RVSD 07/06 mnb July 18 2015 Audit Review 20 min K. Smith Compensation Philosophy & Market Pricing 15 min J. Heckman B. Wilkerson Benefits - Historical Forecast Accuracy & Possible Plan Changes 45 min K. Hess T. Storin Colorado Care Ballot Initiative 30 min R. Shannon URA Aug 15 Natural Areas – Financial Review 40 min J. Stokes Capital Expansion Fee Update 30 min T. Smith Energy Efficiency Financing – Off Balance Sheet 30 min J. Voss J. Phelan Foundation Creation 20 min N. Johnson URA Sep 19 Utility Rate Structures 45 min L. Smith Building Cost Impact Stack 30 min L. Kadrich M. Beckstead 2015 Year End Financial Summary 30 min T. Storin URA Oct 17 Revenue Diversification Outreach Update 30 min T. Smith URA Future Council Finance Committee Topics: Parking Garage Financing – QII 2017 Sales Tax Code Updates – November Future URA Committee Topics: Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Council Finance & Audit Committee July 18, 2016 9:30 - 11:30 am CIC Room - City Hall Approval of the Minutes from the June 20, 2016 meeting 1. 2015 Audit Review 20 minutes K. Smith 2. Compensation Philosophy & Market Pricing 15 minutes J. Heckman B. Wilkerson 3. Benefits - Historical Forecast Accuracy & Possible Plan Changes 45 minutes K. Hess T. Storin 4. Colorado Care Ballot Initiative 30 minutes R. Shannon UOTHER BUSINESS Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Council Audit & Finance Committee Minutes 06/20/16 9:30 - 11:30 am CIC Room Council Attendees: Mayor Wade Troxell, Gerry Horak, Ross Cunniff Staff: Darin Atteberry via phone, Jeff Mihelich, Mike Beckstead, Kelly DiMartino, Janet Miller, Rick Richter, Dean Klingner, Matt Baker, Kevin Gertig, Lance Smith, John Voss, Greg Jensen, Carolyn Koontz Others: Dale Adams, Jason Licon, Airport Director, Duane Guthrie, Consultant Kevin Jones, Natasha Rehak and Arielle Gallegos (CSU grad students) Meeting started at 9:30 am UAPPROVAL OF MINUTES Mayor Troxell made a motion to approve the June 1, 2016 Council Finance Committee minutes. Gerry Horak made a second to the motion. The minutes were approved unanimously. A. UHourly Employee Administrative Adjustment Kelly DiMartino, Assistant City Manager Janet Miller, Assistant HR Director EXECUTIVE SUMMARY As part of the 2017-2018 budget planning process, the City’s HR department is proposing a change to move 156 current hourly positions to classified jobs. The estimated cost is $2.5M. These positions have been identified as resources essential for meeting ongoing service needs. This proposal is responsive to recent changes associated with federal healthcare reform, a need to better align employment categories to avoid legal pitfalls, increasing competition for skilled workers and a desire to position the City to attract and retain talent. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE The purpose is to inform Councilmembers of the proposal prior to finalizing the recommended budget and address Council questions. 11% current turnover - first time for the city to be in double digits 202 full time hourly (over 30 hours) employees as of May 2016 (8.5% of workforce) 2 City is required by law to provide this group with health insurance except for full time seasonal employees. Administrative Adjustment - 156 positions - $2.5m one time - $1.5m salary and $850k in benefits. Goal would be to eliminate the full time hourly classification (except seasonal resources). Kelly DiMartino commented; Hourly work force was more affordable - positions were put in place before the health care reform came into play. There was a very clear distinction (hourly employees did not receive any benefits) now there is less distinction. We have folks in the same jobs - one gets full benefits and one does not. Ross Cunniff asked; why this shouldn’t be viewed as giving a $10k raise to 156 employees. Kelly DiMartino responded; this is about the position not the person. When a position is moved to classified we would go through a competitive recruitment process. Ross Cunniff asked; what data do we have regarding turnover rates that show folks are leaving? We need to see more data including turnover rates and distribution of salary. Janet Miller answered; some of the data is challenging to get because the position is what we asked managers to identify. We don’t have an FTE attached to track as the hourly positions were funded and categorized differently. For hourly employees, a service could be provided by 2 half time resources. Kelly – There is a position ID attached to a classified FTE role which goes through the budget process, however we do not have the same position ID structure for hourly positions. Turnover is not tracked by person for hourly roles so we have a challenge in getting hard numbers. Mayor Troxell asked; who is hiring our people off of the ball fields? Janet Miller responded - Folks from other communities and Poudre School District. They are being hired into jobs that are classified (full benefits, retirement, leave etc.) Mayor Troxell asked; are you looking at any other options such as outsourcing? Janet Miller responded; we have talked about this but the organizations who would be potential providers are facing the same challenges we are. The costs that they have looked at would be higher. Ross Cunniff commented; based on some metrics if we were unable to hire for some period of time then that particular position could get converted to Classified. If no incumbent - rather than doing this in one big chunk, we should make the program about turnover of positions not about a blanket change. Gerry Horak commented; I can’t support this right now. There is not enough data, analysis. Mike Beckstead commented; the improvement on this is the controls and hiring process and not having a 2 tier labor system for the same role. How we recruit and retain folks. All roles changing from hourly to classified would go through a modified recruitment process. 3 Gerry Horak added that this was initiated by management not council. CFC’s job is to look at outcomes. Darin Atteberry added; That is an easy argument to make operationally and management wise. We have saved the city millions of dollars over the years by using this approach. The law changed and the market tightened. The folks we have on the staff are doing phenomenal work. The game has changed and this tool was taken away from us. We are not able to use this tool as effectively as we could in the past - managers are doing everything they can to deliver the services. Gerry Horak commented; some of the options are contracting out or other things. We have not been presented with the evidence to say yes. No alternatives or real analysis of how we got to this spot – or what the great savings have been. We need the back story. Darin Atteberry added; we are bringing to you what we see as an issue for budget. We are well aware of the condition we are dealing with - what I hear you saying is what other options have been evaluated. To Kelly and Janet - We should go back to drawing board with departments – more vetting to do with options. Darin Atteberry to Mike Beckstead; - How does this get integrated into existing offers or if this a separate offer? Mike Beckstead responded; as an example, Recreation has an ongoing offer. A separate offer was created that includes the cost of hourly positions that are being proposed to change to Classified including the net reduction in hourly costs in the ongoing offer if funded as FTE. We can look at it in total or in pieces. Ross Cunniff commented; what is the minimal $ we could spend to come within federal regulations. Janet Miller responded; we are meeting that - we had to put that in place. This is an attempt to be proactive in this workforce concern. Next Step: Mike Beckstead summarized; CFC is looking for more information and analytics and for other options such as outsourcing to be investigated to be included in the budget process. B. Utilities 2016 Strategic Financial Plan Update Lance Smith, Utilities Strategic Financial Director EXECUTIVE SUMMARY: The purpose of this agenda item is to provide the Council Finance Committee with an update on the 2016 Utilities Strategic Financial Plan as a follow up to the discussion on April 18, 2016 on each utility’s Capital Improvement Plan (CIP). As stated in that Agenda Item Summary: “Each of these plans [CIPs] is projecting substantial capital investment being needed for each utility over the next decade. Because the projected levels of investment are not achievable through current 4 operating revenues alone it will be necessary to further analyze the best means of achieving these operational needs without negatively impacting the financial integrity of the utilities while maintaining affordable utilities to the community. This analysis and the long term Utilities Strategic Financial Plan will be the focus of the follow up discussion in a few months.” Recommendations for achieving the capital investments proposed in the CIPs while maintaining the financial health of each utility, along with the bond rating, through modest rate adjustments are discussed below and in the presentation. With the exception of the Storm water Fund, the recommendation achieves these objectives within the next decade. The Storm water CIP will require 15 years to complete the work targeted within the next decade in order to achieve these objectives. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does the Council Finance Committee support the Utilities Strategic Financial Planning recommendations? Continuation of April 18P th P discussion; Adequate reserves are not available so we were asked to look at other options such as rate increases or issuing debt and come back. Overall planning process - CIP numbers have been incorporated into the financial models. The models look back 10 years and forward 10 years + current year (21 years of historical perspective). Four Enterprise Funds evaluated based on the scenarios below; Scenario 1; Can we do this with modest rate increases? Scenario 2; If not just with rate adjustments, consider issuing of debt Scenario 3; If not above, then work with the timing of CIP Light & Power Fund Can achieve with modest rate increases. Wholesale increases from Platt River are included in model. The Income Qualified Rate that is being discussed and the CAP specific projects are not included in the model. Mayor Troxell commented; As we move more toward other means of distributed power such as solar, there will be a shift where there are more requirements to manage - therefore the costs to do this will increase - energy costs should go down - so that would mean a different rate structure that reflects more the true costs of operating a distribution utility - shift to more accurately reflect the end costs. Lance Smith added; Rate changes not reflected here. This is assuming the same rate structure. I would like to come back and talk to CFC about different rate structures. 5 Mike Beckstead added; we have specific forecasts / predictions for the PRPA piece. The 4 up chart illustrates backing into the required rate change. The model blends it all together – on this slide we tried to break it out. The limiter here is an assume maximum 5% rate increase per year Gerry Horak commented; please show us specifics by year in the future Water Enterprise Fund Modest rate increases plus $55-$75M of debt recommended. All rates would require increases in excess of 20% for the two year spike. Wildcard is uncertainty around when and if Halligan happens (’20 and ’21) Smoothing out capital needs over 10 years - may mean delaying projects 1 or 2 years to build up funds. Wastewater Fund Modest Rate increases are the recommendation. Available reserves could carry through 5 years. Caveat for this fund is just beyond 2026 as there are some nutrient removal regulation projects coming in out years with $60-80m estimated cost. Stormwater Fund 3 major outfall projects that still need to be built Modest rate increases combine with debt issuance is the recommendation 10% rate increases –operating income leveling off - debt 2018 and 3 years after $80-90m of debt issuance over first 5 years Stretching CIP improvements out to 15 years from 10 and 2 modest rate increases - reducing near term debt issuance to $40-50m Gerry Horak asked; how much of the water reserves came from people giving us money for expansion? Lance Smith responded; Reserves for water, our customers buying into our existing infrastructure – don’t have that exact $ amount. Also people can pay cash in lieu of water rights and those funds are maintained for water supply development. Gerry Horak asked; is that represented in these numbers? Lance Smith responded; yes, there was a slide in our April presentation that illustrated operating revenues and funds put forward toward capital improvements. Mike Beckstead added; we have an understanding of what that number is. When we talked about Michigan Ditch and Halligan -$7.5m in water rights - part of the $64M fund balance to be used for these purposes. Gerry Horak asked; - When are we going to be looking at how undervalued our current number is Lance – looking at cash in lieu of and capital requirements – we are coming back to a Council Work Session in October - will make some recommendations - we will be giving that to you when we talk about cash in lieu of water requirements - Impact rate – not a market driven rate – so we are looking at the costs of adding those new customers 6 Ross Cunniff asked; if we used a different mindset or perspective on what it would cost to replace the water rights we sold that would lead to a different number – that is the kind of analysis I would like to see for the October session (raw water costs). o Cash in lieu of o Water requirement o Changes we are looking to Implement in January 2017 Gerry Horak asked; what part of this is the growth? Are fees going to meet those needs? Break the chunks out of reserves - future moneys coming in that take away from rates. Lance Smith responded; CIPs - component for new growth and for existing infrastructure. Next Step: Mike Beckstead summarized; we will bring this back to CFC before the October work session. Impact fees are based on the current costs of whatever infrastructure we have in place. 2018 debt in water is largely tied to the timing of when Halligan moves forward. General consensus / support for range of rate increases and the debt issuances. C. Airport Supplementary Appropriation Request Jason Licon, Airport Director SUBJECT FOR DISCUSSION: Airport Supplementary Appropriation Request EXECUTIVE SUMMARY: The City Council approved Northern Colorado Regional Airport’s Strategic Plan is a guiding document that prioritizes goals and tactics for Northern Colorado Regional Airport Commission and Staff. Included in the plan are five goals including: 1) protecting the Airport from non-compatible land use within the airport influence area, 2) creation of a more sustainable business model, 3) encouragement of private investment, 4) revising the Airport’s governance structure, and 5) rebranding the Airport and enhancing communications and public engagement. Strategic goals that have been achieved include the revision of the Airport’s governance structure, and the investigation and reporting of land use adjacent to the Airport including the protections that exist from residential encroachment. The strategic goals that remain focus on the financial and social Provide direction on the proposed appropriation of Airport reserve funds in order to achieve remaining strategic plan objectives. Airport Strategic Plan slide - 2 of 5 of strategic planning items are accomplished - #1 and #4 as listed above have been completed. We are now looking to move forward with the other 3 The ask today is to appropriate $165k from the airport reserve fund ($1.7m current balance) Additional costs for 2017 and 2018 ($82,500 per city) which will be phased out in 2019. 7 This would include the addition of 1 FTE for Business Development and Marketing (currently have 5 FTEs). Renaming the airport - create a new identity - to find new investment into the facilities for both aviation and non-aviation land use. Mike Beckstead clarified; our ask is for half of the $165k needed. We are looking to appropriate the $82.5k.The ask July 5P th P if or the $82.5k. 2017 and 2018 numbers will be built into the BFO offer. Mayor Troxell commented; one of the things the commission has tried to do is to think of the economic influence area of the airport, materials around the airport, the property itself, the economic sphere around the airport and leveraging that in ways that are very intentional. Looking at sustainability model not just reactive to what might come along - building a more self- reliant, economic base that extends beyond just take offs and landings - looks at all of the elements that drive economic development. Gerry Horak commented; we need context for the numbers to include current budget / current level of reserves and then what the plan is for future to include a proforma of revenue projections. Capital improvement needs and what those reserves may be needed for. The public needs context for what is happening in order to see the light at the end of the tunnel. Darin Atteberry added; - I agree with everything Gerry said. The commission had a conversation about this and intentionally and consciously recommended the use of reserves - really important for the commission of the two cities. Historically we have used these dollars for capital grant matches. This is so important that using reserves in this case is not only advisable but they are recommending and encouraging it. Next Step: Mike Beckstead asked: Would CFC support on consent for July 5P th P or as a discussion item? Gerry Horak responded; that depends on the completeness of the updated AIS information that will be provided. Can go on consent but may be pulled if information is not adequate. D. UTransportation Capital Expansion Fee (Street Oversizing) Assessment Dean Klingner, Capital Projects Manager EXECUTIVE SUMMARY This is the second Council Finance Committee meeting for this item. The City of Fort Collins has retained TischlerBise, Inc. as a consultant to assist the City with the assessment of its existing Transportation Capital Expansion Fee Program (Street Oversizing Capital Expansion Fee Program). 8 At the November 18P th P 2015 Finance Committee Meeting, staff highlighted the process of updating the base assumptions and data used to calculate impact transportation impact fees. The proposed changes to the program presented: • Changing the name from “Street Oversizing” to “Transportation Capital Expansion Fee” • Using Vehicle Miles Travelled (VMT) as the basis for determining impact, instead of trips generated. • Transportation impact fees to be assessed by dwelling size instead of unit type, similar to how all other Capital Expansion fees are assessed. Capital Expansion Fees in general are perceived to affect the affordability of homes, and staff recognizes the sensitivity of fee increases. • Simplify the transportation impact fee schedule from 43 categories of use to only a handful; Residential (by size of unit) and two broad categories for commercial and industrial. Staff has now developed proposed fee rates based on the new methodology for consideration. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Are there any questions or concerns about the adjustments being considered to the Transportation Capital Expansion fees? Are there any comments regarding the idea of further increasing the fee to capture development impacts on capacity improvements, such as intersections, roundabouts and traffic signal improvements? Ross Cunniff asked; do we have a chart of the lane miles built per population historically? Dean Klingner responded; we don’t currently have that but could put that together. High range and Low range slides- switch in proportion and cost of program Cost per trip – cost per vehicle mile / how long the trips are Program increase modest - impact fee – represented as range Honing in - fees directly proportionate to impact to development - Square footage used for single family dwelling instead of use types Council work session on August 9P th Ross Cunniff commented; Reaction - the cost is the cost - we are doing our best job at trying to estimate. Allocating that to the new BMT allocated to the project which seems very logical. Gerry Horak asked; how is geography included? Dean Klingner responded; what we see Fort Collins in a transition more toward urban development In a national context we are right at the cusps where we could justify shorter trips. This is an Emerging trend – will see this in next update 5 years from now. There is no adjustment for geography in the fee right now. 9 Gerry Horak asked; do other jurisdictions do this? Duane Guthrie responded; Likely to switch over at some point - Could do that now from a policy perspective - there is enough support - urban areas meet certain criteria that effect how much travel in cars – terms are; walkable urban vs drivable suburban. Gerry Horak asked; have you spoken with the planning folks? Population / Buildout Analysis Dean Klingner responded; this is consistent with the work that Cameron Gloss has done. Duane Guthrie added; Fits better with the Colorado enabling legislation - fees to be imposed on a broad class of property - not done project by project. Gerry Horak commented; the logic for commercial fees to be lowered is because of the impacts. They are located in areas that make more sense - not in outer regions. Mayor Troxell - We are not just downtown we are a transit oriented corridor which is our main spine and the Harmony corridor. Ross Cunniff asked about social economic analysis. Dean Klingner; Actual building permit data was used and analyzed. American community survey based on # of people per housing unit, # of vehicle available – that is how we came up with a gradient by size (small single person housing units = less people, fewer vehicles, less trips). Gerry Horak asked; what work has been done with commercial folks with builders, etc. Dean Klingner responded; we need to get out and do that - we will have that done between now and the work session - We are anticipating concern about residential fees. Next Step; Council Work Session on 8/9 Proceed UOTHER BUSINESS: August - we will talk about other Capital Expansion Fees - that work is in process Woodward Rebates - Application has been made for the 2P nd P half of 2015 It has taken us 3 months to work through issues Per the development agreement, $180K all use tax - no question about what fund this will come from - all from GF Next Step; Council supports bringing this item forward on consent. They requested that good analysis and evidence be documented in the AIS. COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Travis Storin, Accounting Director Kevin Smith, Assurance Partner, RSM US LLP Date: July 18, 2016 SUBJECT FOR DISCUSSION Independent Auditors’ Report on 2015 Financial Statements Independent Auditors’ Report on Compliance for Major Federal Programs EXECUTIVE SUMMARY RSM will be presenting the Report to the City Council. This report covers the audit of the basic financial statements and compliance of the City of Fort Collins for year-end December 31, 2015. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Staff seeks input on areas of priority or concern, other than those established in this Report to the City Council, for matters of recordkeeping and/or the City’s internal control environment. Otherwise there are no specific questions to be answered as this is a 2015 year-end report. BACKGROUND/DISCUSSION Every year the City is required to be audited in compliance with Government Auditing Standards. RSM finalized its financial statement audit and compliance report on June 14, 2016 and the firm is required to report the results of the audit to those charged with governance. There were no findings identified related to Federal grants in the Compliance Report. Financial misstatements identified by the auditors that were deemed immaterial for adjustment and control deficiencies identified by the auditors can be found in the Report to the City Council, Exhibit A. Staff will provide a written response to the audit findings and misstatements at the October Council Finance Committee meeting. ATTACHMENTS 1. Report to the City Council 2. Compliance Report 3. Comprehensive Annual Financial Report City of Fort Collins, Colorado Report to the City Council June 14, 2016 555 17th St Suite 1000 Denver, CO 80202 T +1 303 298 6400 F +1 303 298 6401 www.rsmus.com June 14, 2016 To the Honorable Mayor and Members of the City Council and City Manager City of Fort Collins, Colorado Fort Collins, Colorado We are pleased to present this report related to our audit of the basic financial statements of the City of Fort Collins, Colorado (the City) for the year ended December 31, 2015. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the City’s financial reporting process. This report is intended solely for the information and use of the City Council and management and is not intended to be, and should not be, used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to the City of Fort Collins, Colorado. Contents Required communications 1-2 Summary of significant accounting estimates 3-5 Summary of uncorrected misstatements 6-7 Recently issued accounting standards 8-9 Exhibit A—Significant written communications between management and our firm Representation letter Control deficiency letter 1 Required Communications Generally accepted auditing standards (AU-C 260, The Auditor’s Communication with Those Charged with Governance) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial reporting process. Area Comments Our Responsibilities With Regard to the Financial Statement Audit Our responsibilities under auditing standards generally accepted in the United States of America, Government Auditing Standards issued by the Comptroller General of the United States, and provisions of the Uniform Guidance and OMB’s Compliance Supplement have been described to you in our arrangement letter dated March 10, 2016. Our audit of the financial statements does not relieve management or those charged with governance of their responsibilities which are also described in that letter. Overview of the Planned Scope and Timing of the Financial Statement Audit We have issued a separate communication regarding the planned scope and timing of our audit and have discussed with you our identification of and planned audit response to significant risks of material misstatement. Accounting Policies and Practices Preferability of Accounting Policies and Practices Under generally accepted accounting principles, in certain circumstances, management may select among alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice. Adoption of, or Change in, Accounting Policies Management has the ultimate responsibility for the appropriateness of the accounting policies used by the City. In the current year, the City adopted the following Governmental Accounting Standards Board (GASB) Statement:  GASB Statement No. 68, Accounting and Financial Reporting for Pensions.The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. The adoption of this Statement required the City to recognize its long-term obligation for pension benefits related to the General Employees’ Retirement Plan (GERP) as a liability within their financial statements, as well as, to more comprehensively and comparably measure the annual costs of pension benefits. This statement also enhances the accountability and transparency through revised and new note disclosures and required supplementary information. As a result of implementing this new Statement, the City restated (reduced) its beginning net position of the governmental activities, business-type activities, each major enterprise fund and the aggregate remaining fund information to record a net pension liability relating to GERP by $2.5 million and $5.9 million for governmental activities and business-type activities, respectively. 2 Area Comments Significant or Unusual Transactions We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Management’s Judgments and Accounting Estimates Summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates is in the attached Summary of Significant Accounting Estimates. Audit Adjustments There were no audit adjustments proposed by us that were made to the original trial balance presented to us to begin our audit. Uncorrected Misstatements Uncorrected misstatements are summarized in the attached Summary of Uncorrected Misstatements. Disagreements With Management We encountered no disagreements with management over the application of significant accounting principles, the basis for management’s judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. Consultations With Other Accountants We are not aware of any consultations management had with other accountants about accounting or auditing matters. Significant Issues Discussed With Management No significant issues arising from the audit were discussed with or were the subject of correspondence with management. Significant Difficulties Encountered in Performing the Audit We did not encounter any significant difficulties in dealing with management during the audit. Accounting Pronouncements Please refer to the attachment for new accounting pronouncements that have been recently issued that may affect the City’s financial statements in future periods. Report on Internal Control Over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards We have separately issued a report on internal control over financial reporting and on compliance and other matters based on our audit of the financial statements and major awards, as required by the Government Auditing Standards and the Uniform Guidance. This communication is included within the compliance report of the City for the year ended December 31, 2015. Significant Written Communications Between Management and Our Firm Copies of significant written communications between our firm and the 3 Summary of Significant Accounting Estimates Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the City’s December 31, 2015 basic financial statements. Estimate Accounting Policy Management’s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Depreciable Useful Life of Capital Assets The depreciable useful life of capital assets is set at the estimated useful life of the related asset. The determination is made at the time the asset is placed into service and involves various judgments and assumptions based on prior experience. We tested the propriety of information underlying management’s estimates. Based on our procedures, we concluded that management’s estimates are reasonable. Incurred But Not Reported (IBNR) Property Liability, Worker’s Compensation, Health Dental and Vision The City records an estimated reserve for workers’ compensation and other risk management liabilities based on actual and estimated claims outstanding as of year- end, and calculations performed by a specialist and include numerous assumptions and estimates. The assumption factors 4 Estimate Accounting Policy Management’s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Allowance for Doubtful Accounts The allowance for doubtful accounts is based on management’s estimate of collectability of identified receivables, as well as aging of customer accounts. The allowance is adjusted as information and specific accounts become available. The City also compares current allowance amounts to prior-year collection or write-off experience. We tested the underlying information supporting this allowance, including the most recent aging reports and collection experience. We concluded that management’s estimate is reasonable. Net Pension Liability The City’s net pension liability and related deferred inflows and outflows of resources and pension expenses from the General Employees’ Retirement Plan are recorded in the financial statements in accordance with GASB Statement No. 68. The City uses an actuary to calculate the net pension liability/asset and expense based on assumptions and estimates established by the Plan’s Board and management from past history and investment returns. City 5 Estimate Accounting Policy Management’s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Assets Held for Sale The assets held for sale are recorded at the lower of cost or fair value. The assets held for sale are initially recorded at cost and evaluated by management on an annual basis for any declines in the value of the property based on fair value. Fair value is the sale price of the property when it eventually sells, less selling costs. We tested the underlying information supporting this estimate and concluded that the estimate and the process used by management is reasonable. Modified Approach Infrastructure The City has elected to use the “Modified Approach” as defined by GASB Statement No. 34 for infrastructure reporting for its streets pavement system. These assets are not required to be depreciated, but the City is required to estimate the annual amount to maintain and preserve the assets at the established condition assessment level. The City’s pavement management program conducts condition assessment surveys on a three-year cycle. Based on the information obtained for these surveys, the City 6 Summary of Uncorrected Misstatements During the course of our audit, we accumulated uncorrected misstatements that were determined by management to be immaterial, both individually and in the aggregate, to the basic financial statements and to the related basic financial statement disclosures. Following is a summary of those differences. Governmental Activities Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ 1,154,000 $ (1,041,000) $ (113,000) Current misstatement, factual: Overstatement of current year expenses from capital asset correcting entry - - 325,000 - (325,000) To correct the unreconciled bank to book cash balances 352,000 - - (244,000) (108,000) Subtotal $ 352,000 $ - 1,479,000 $ (1,285,000) $ (546,000) Effect of current year passed adjustments on net position (1,831,000) Total $ (352,000) Aggregate Remaining Fund Information Assets Liabilities Fund Balance/ Net Position Revenue Expense/ Expenditure Description: Carryover impact from previous years $ - $ - $ 401,000 $ (288,000) $ (113,000) Current misstatement, factual: To correct the unreconciled bank to book cash balances 352,000 - - (244,000) (108,000) Subtotal $ 352,000 $ - 401,000 $ (532,000) $ (221,000) Effect of current year passed adjustments on fund balance (753,000) Total $ (352,000) Business-Type Activities Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ (164,000) $ - $ 164,000 Current misstatement, factual: Correction of errors recorded in prior years relating to inappropriately capitalized interest for the Halligan Water Supply Project - - 962,000 - (962,000) Entry to record capitalized interest 1,646,000 - - - (1,646,000) Subtotal $ 1,646,000 $ - 798,000 $ - $ (2,444,000) Effect of current year passed adjustments on net position (2,444,000) Total $ (1,646,000) Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements 7 Summary of Uncorrected Misstatements (Continued) Water Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ (164,000) $ - $ 164,000 Current misstatement, factual: Correction of errors recorded in prior years relating to inappropriately capitalized interest for the Halligan Water Supply Project - - 962,000 - (962,000) Entry to record capitalized interest 460,000 - - - (460,000) Subtotal $ 460,000 $ - 798,000 $ - $ (1,258,000) Effect of current year passed adjustments on net position (1,258,000) Total $ (460,000) Light and Power Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Entry to record capitalized interest 448,000 - - - (448,000) Subtotal $ 448,000 $ - - $ - $ (448,000) Effect of current year passed adjustments on net position (448,000) Total $ (448,000) Wastewater Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Entry to record capitalized interest 477,000 - - - (477,000) Subtotal $ 477,000 $ - - $ - $ (477,000) Effect of current year passed adjustments on net position (477,000) Total $ (477,000) Storm Drainage Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Entry to record capitalized interest 261,000 - - - (261,000) Subtotal $ 261,000 $ - - $ - $ (261,000) Effect of current year passed adjustments on net position (261,000) Total $ (261,000) Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements 8 Recently Issued Accounting Standards The GASB has issued several statements not yet implemented by the City. The City’s management has not yet determined the effect these statements will have on the City’s financial statements. However, the City plans to implement all standards by the required dates. The standards which will impact the City are as follows: GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions This Statement, issued June 2015, will be effective for the City beginning with its fiscal year ending December 31, 2018. The Statement replaces the requirements of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions and requires governments to report a liability on the face of the financial statements for the OPEB they provide and outlines the reporting requirements by governments for defined benefit OPEB plans administered through a trust, cost-sharing OPEB plans administered through a trust and OPEB not provided through a trust. The Statement also requires governments to present more extensive note disclosures and required supplementary information about their OPEB liabilities. Some governments are legally responsible to make contributions directly to an OPEB plan or make benefit payments directly as OPEB comes due for employees of other governments. In certain circumstances, called special funding situations, the Statement requires these governments to recognize in their financial statements a share of the other government’s net OPEB liability. GASB Statement No. 77, Tax Abatement Disclosures This Statement, issued August 2015, will be effective for the City beginning with its fiscal year ending December 31, 2016. The requirements of this Statement improve financial reporting by giving users of financial statements essential information that is not consistently or comprehensively reported to the public at present. Disclosure of information about the nature and magnitude of tax abatements will make these transactions more transparent to financial statement users. As a result, users will be better equipped to understand (1) how tax abatements affect a government’s future ability to raise resources and meet its financial obligations and (2) the impact those abatements have on a government’s financial position and economic condition. GASB Statement No. 79, Certain External Investment Pools and Pool Participants This Statement, issued December 2015, will be effective for the City beginning with its fiscal year ending December 31, 2016. This Statement will enhance comparability of financial statements among governments by establishing specific criteria used to determine whether a qualifying external investment pool may elect to use an amortized cost exception to fair value measurement. Those criteria will provide qualifying external investment pools and participants in those pools with consistent application of an amortized cost-based measurement for financial reporting purposes. That measurement approximates fair value and mirrors the operations of external investment pools that transact with participants at a stable net asset value per share. GASB Statement No. 80, Blending Requirements for 9 GASB Statement No. 82, Pension Issues – an amendment of GASB Statements No. 67, No. 68, and No. 73 This Statement, issued March 2016, will be effective for the City beginning with its fiscal year ending December 31, 2017. The requirements of this Statement will improve financial reporting by enhancing consistency in the application of financial reporting requirements to certain pension issues. Exhibit A—Significant Written Communications between Management and Our Firm 555 17th St Suite 1000 Denver, CO 80202 T +1 303 298 6400 F +1 303 298 6401 www.rsmus.com June 14, 2016 To the Honorable Mayor and Members of the City Council and City Manager City of Fort Collins, Colorado In planning and performing our audit of the financial statements of the City of Fort Collins, Colorado (the City) as of and for the year ended December 31, 2015, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Following are descriptions of other identified deficiencies in internal control that we determined did not constitute significant deficiencies or material weaknesses: Cash Reconciliations The City did not reconcile all bank accounts in a timely manner throughout the year ending December 31, 2015. Cash reconciliations provided during the audit had unreconciled differences between the bank statements and general ledger of approximately $352,000. We recommend the City establish procedures to prepare and review cash reconciliations timely and accurately to reconcile the bank balance to the book balance with no significant unreconciled differences. City of Fort Collins, Colorado June 14, 2016 Page 2 Reconciliation of Federal Transit Administration (FTA) grant expenditures During 2015, the City performed monthly reconciliations of the FTA drawdowns requested/received to the amounts recorded in the general ledger. The City utilized these drawdown requests to populate the year- end schedule of expenditures of federal awards (SEFA). The City does not have an adequate process in place however, for also reconciling expenditure accruals recorded in the general ledger subsequent to year-end, to the SEFA to ensure these expenditure accruals are recorded properly in the SEFA. As a result of this, FTA expenditures were reported on the 2015 SEFA that should have been reported on the 2014 SEFA, consistent with the expenditure recognition in the financial statements. We recommend the City develop an adequate process to reconcile year-end expenditure accruals to the SEFA to verify that federal expenditures for the FTA grants are reported in the proper period. This communication is intended solely for the information and use of management, City Council, others within the City, and is not intended to be and should not be used by anyone other than these specified parties. City of Fort Collins, Colorado Compliance Report Year Ended December 31, 2015 Contents Schedule of expenditures of federal awards 1-2 Notes to schedule of expenditures of federal awards 3 Report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards 4-5 Report on compliance for each major federal program; report on internal control over compliance; and report on the schedule of expenditures of federal awards required by The Uniform Guidance 6-7 Summary schedule of prior audit findings 8 Schedule of findings and questioned costs 9-10 Corrective action plan 11 1 City of Fort Collins, Colorado Schedule of Expenditures of Federal Awards Year Ended December 31, 2015 Federal Pass-Through Federal Grantor/ CFDA Entity Identifying Federal Pass-Through Grantor/Program Title Number Number Expenditures Department of Housing and Urban Development Community Development Block Grants (Direct): Grant Year 2010 / 2011 14.218 B-10-MC-08-0008 $ 8,996 Grant Year 2012 / 2013 14.218 B-12-MC-08-0008 290,455 Grant Year 2013 / 2014 14.218 B-13-MC-08-0008 617,475 Grant Year 2014 / 2015 14.218 B-14-MC-08-0008 195,135 Grant Year 2015 / 2016 14.218 B-15-MC-08-0008 79,411 Subtotal 1,191,472 Home Investment Partnership Programs (Direct): Grant Year 2011 / 2012 14.239 M-11-MC-08-0209 45,466 Grant Year 2012 / 2013 14.239 M-12-MC-08-0209 52,329 Grant Year 2013 / 2014 14.239 M-13-MC-08-0209 28,941 Grant Year 2014 / 2015 14.239 M-14-MC-08-0209 1,053 Grant Year 2015 / 2016 14.239 M-15-MC-08-0209 12,490 Subtotal 140,279 Total Department of Housing and Urban Development 1,331,751 Department of Justice (Passed through the Colorado Division of Criminal Justice): RJ Juvenile Diversion Grant 16.523 None 49,022 Internet Crimes Against Children 16.543 2015-MC-FX-K009 7,000 JAG Grant 16.738 2013-DJ-BX-0149 22,337 Total Department of Justice 78,359 Department of Transportation National Highway Traffic Safety Administration (Passed through the Colorado Department of Transportation): DUI Grant 20.601 None 13,910 Police LEAF Grant 20.601 None 8,147 Seatbelt Grant 20.604 None 6,926 Total National Highway Traffic Safety Administration 28,983 Federal Highway Administration (Passed through the Colorado Department of Transportation): FC Bikes - CMAQ 20.205 14 HTD-649742 199,100 Horsetooth/Timberline Improvements 20.205 ACQ M455-010 (19307) 319,802 Traffic Responsive Signal System 20.205 AQC M455-098 (17573) 155,937 Jefferson Street/SH 14 Intersection 20.205 ACQ M455-088 (16525) 16,188 W Mulberry St Bridge Rprs 20.205 BRO M455-113 (19747) 371,956 Drake/Shield Intersection Impv 20.205 SHO M455-108 (19059) 45,979 Mulberry/Lemay Ped Brdg-P Trl 20.205 STE M455-105 (18399) 368,000 US287 - Conifer to Willox 20.205 STE M455-106 (18401) 3,571,910 Shields/Vine Intersection Improvements 20.205 STU M455-108 (18877) 827,980 N.College Pedestrian Connection 20.205 AQC M455-111 (19561) 25,882 Total Federal Highway Administration 5,902,734 (Continued) 2 City of Fort Collins, Colorado Schedule of Expenditures of Federal Awards (Continued) Year Ended December 31, 2015 Federal Pass-Through Federal Grantor/ CFDA Entity Identifying Federal Pass-Through Grantor/Program Title Number Number Expenditures Federal Transit Administration (Cluster) (Formula Grants - Capital 5309) (Direct): Capital 5309 (2010) 20.500 CO-04-0086-00 83,300 State of Good Repair (5309) -2010 20.500 CO-04-0087-00 541,863 State of Good Repair (5309) -2012 20.500 CO-04-0113-00 1,065,712 Section 5339 - 2013 20.500 CO-34-0004-00 261,963 2009 Mason Corridor Small Starts 20.500 CO-03-0206-01 2,587,179 Subtotal 4,540,017 (Urbanized Area Formula Grants - 5307) (Direct): 08/09 Flexed FHWA CMAQ 20.507 CO-95-X004-00 16,805 2013 Capital & Operating 20.507 CO-90-X217-00 2,214,134 2014 Capital & Operating 20.507 CO-90-X219-00 5,332,186 2013 Rides to Wellness - 2013 20.507 CO-16-X048-00 74,936 2013 Rides to Wellness - 2014 20.507 CO-16-X049-00 26,709 7,664,770 Total Federal Transit Administration (Cluster) 12,204,787 Total Department of Transportation 18,136,504 Institute of Museum and Library Services (Direct) IMLS High Park Fire 45.301 MA-10-13-0562-13 63,976 Environmental Protection Agency (Passed through the Colorado Department of Public Health and Environment): 2013-2014 Radon Grant 66.032 None 4,973 Department of Veterans Affairs Veterans Adaptive Sports Grant (Direct) 64.034 2015-ASG-16 15,885 Department of Energy (Direct) ARRA - Smart Grid Investment Grant 81.122 DE-OE0000357 1,193,838 Office of National Drug Control Policy (Direct) HIDTA Grant 95.001 G14RM0020A 116,190 Total Expenditures of Federal Awards $ 20,941,476 See notes to schedule of expenditures of federal awards. City of Fort Collins, Colorado Notes to Schedule of Expenditures of Federal Awards Year Ended December 31, 2015 3 Note 1. Basis of Presentation The accompanying schedule of expenditures of federal awards (the “Schedule”) includes the federal grant activity of the City of Fort Collins, Colorado (the City) and its discretely presented component unit under programs of the federal government for the year ended December 31, 2015. All federal awards received directly from federal agencies, as well as federal awards passed through other governmental entities, are included in the Schedule. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position or cash flows of the City. Note 2. Significant Accounting Policies Expenditures of federal awards are reported on the modified accrual basis of accounting in the governmental funds and the accrual basis of accounting in the proprietary funds. Expenditures of federal awards are recognized in the accounting period when the liability is incurred. Such expenditures are recognized following the cost principles contained OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, or the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through identifying numbers are presented where available. Note 3. Subrecipients Of the federal expenditures presented in the schedule, the City provided federal awards to subrecipients during the year ended December 31, 2015, as follows: Amount Federal CFDA Provided to Program Title Number Subrecipients Community Development Block Grant (CDBG) - Entitlement Grants 14.218 $ 944,379 Home Investment Partnership Program 14.239 118,072 4 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor’s Report Honorable Mayor and Members of the City Council and City Manager of the City of Fort Collins, Colorado Fort Collins, Colorado We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund and the aggregate remaining fund information of the City of Fort Collins, Colorado (the City), as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 14, 2016. The beginning net position of the governmental activities, business-type activities, each major enterprise fund and the aggregate remaining fund information was restated due to the implementation of GASB Statement No. 68 to recognize a net pension liability. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 5 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Denver, Colorado June 14, 2016 6 Report on Compliance for Each Major Federal Program, Report on Internal Control Over Compliance and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Independent Auditor’s Report Honorable Mayor and Members of the City Council and City Manager of the City of Fort Collins, Colorado Fort Collins, Colorado Report on Compliance for Each Major Federal Program We have audited the City of Fort Collins, Colorado’s (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended December 31, 2015. The City's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2015. 7 Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with The Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Fort Collins, Colorado as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated June 14, 2016, which contained unmodified opinions on those financial statements. The beginning net position of the governmental activities, business-type activities, each major enterprise fund and the aggregate remaining fund information was restated due to the implementation of GASB Statement No. 68 to recognize a net pension liability. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Denver, Colorado June 14, 2016 8 City of Fort Collins, Colorado Summary Schedule of Prior Audit Findings Year Ended December 31, 2015 Corrective Action or Number Comment Status Other Explanation None Reported 9 City of Fort Collins, Colorado Schedule of Findings and Questioned Costs Year Ended December 31, 2015 I. Summary of the Independent Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: . Material weakness(es) identified? Yes No . Significant deficiency(ies) identified? Yes No . Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major programs: . Material weakness(es) identified? Yes No . Significant deficiency(ies) identified? Yes No Type of auditor's report issued on compliance for major programs: Unmodified . Any audit findings disclosed that are required to be reported in accordance with Section 2 CFR 200.516(a)? Yes No Identification of major programs: CFDA Number Name of Federal Program or Cluster 20.205 Federal Highway Administration Grants 81.122 ARRA - Smart Grid Investment Grant Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes No (Continued) City of Fort Collins, Colorado Schedule of Findings and Questioned Costs (Continued) Year Ended December 31, 2015 10 II. Findings Related to the Financial Statement Audit as Required to be Reported in Accordance with Generally Accepted Government Auditing Standards A. Internal Control None reported. B. Compliance findings None reported. III. Findings and Questioned Costs for Federal Awards A. Internal Control None reported. B. Instances of Noncompliance None reported. 11 City of Fort Collins, Colorado Corrective Action Plan Year Ended December 31, 2015 Anticipated Current Date Number Comment Corrective Action Plan of Completion Contact Person None reported COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Kristi Hess, Travis Storin Date: July 18, 2016 SUBJECT FOR DISCUSSION Benefits - Market Analysis & Possible Plan Change Discussion EXECUTIVE SUMMARY The purpose of this discussion is to answer the question ‘what does market mean’ along with how the City defines its overall benefits strategy to support a competitive, cost-effective, total rewards strategy. The City’s philosophy is to provide a benefit plan that is market-based, financially sound and supports the City’s recruitment and retention goals. Staff and benefits consultants monitor and evaluate: 1. Plan design and premium cost share 2. Market benefit surveys 3. Overall plan costs, and 4. Healthcare costs and trends. The City selects surveys that provide comparable data as it relates to type of organization, size of organization and organization’s geographic location. Based on a review of current market data, priorities for 2017 include: managing rising benefit plan costs through a stronger partnership with its external benefit consultants, update/redesign benefit plan design, and employee education and communication campaigns. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED What questions does CFC have about the included historical benefit costing information and the City’s plan to continue managing rising healthcare costs? BACKGROUND/DISCUSSION ATTACHMENTS Attachment 1 – Market Competitive Benefit Discussion Market Competitive Benefit Discussion 7-18-2016 Objectives • Current City Benefit Landscape • Historical Employee Cost-Share Modeling • State of Benefits Market • Future Opportunities 2 City Benefit Offerings Benefits Approach: • Market-competitive • Financially sound plan design – cost containment strategy • Support City’s recruitment and retention goals 3 What does ‘Market’ mean? Key factors: • Plan design (e.g. deductibles, out-of-pocket maximum, co-pays, etc.) • Premiums • Employer and employee cost share data These data points are analyzed and adjustments may be made based on actual claim experience, risk analysis, industry trends and comparison to market surveys. 4 Survey Sources The City has determined it will use the following benefit survey sources for purposes of evaluating its cost management and competitive benefit strategies: • Mountain States Employers Council (MSEC) • Mercer • Custom Survey provided by new benefits consultant, HUB, International 5 State of the Market, July 2016 Comparative Market Data for Premium Cost Share Only (as of July, 2016): • Mountain States Employers Council (MSEC) Health and Welfare Plans, September, 2014 (new data being released in Sept, 2016 – pushed release date) • Mercer National Survey, released June, 2016 • Future: Custom Survey that includes other municipalities and state government entities Employee Only Employee + Family 6 Survey Employer Contribution Employee Contribution MSEC (Northern Colorado) 83% 17% MSEC (Gov’t) 83% 17% Mercer (Gov’t) 82% 18% Mercer (Government 1k-5k EEs) 78% 22% City of Fort Collins 86.8% 13.2% Survey Employer Contribution Employee Contribution MSEC (Northern Colorado) 66% 34% MSEC (Gov’t) 72% 28% Mercer (Gov’t) 72% 28% Mercer (Government 1k- 5k EEs) 72% 28% City of Fort Collins 71.5% 28.5% Plan Benchmarking and Design Comparison Current Plan ER's 1,000 - 4,999 EE's Industry: Government Area: Northern Colorado Industry: Government PPO PPO PPO PPO PPO Deductible: Single / Family $300 / $600 $1,000 / $3,000 $500 / $1,500 $1,060 / $2,890 $1,100 / $2,740 Out of Pocket Max: Single / Family $5,000 / $10,000 $3,000 / $6,000 $2,000 / $4,800 $3,290 / $7,580 $3,560 / $8,120 In-Network Coinsurance: 85% 80% 80% 80% 80% OV Copay: PCP $20 $25 $20 $43 $43 Specialist (when separate) $30 $40 $40 Emergency Room: $200 $125 $125 $400 $460 Prescription Drugs: Avg Copay $0 / $20 / $40 $11 / $31 / $53 / $109 $9 / $28 / $45 / $94 $12 / $32 / $56 / $188 $12 / $33 / $55 / $159 Employee Contribution: Single 13.2% / $71.82 22% / $125 18% / $92 17% / $104 17% / $114 Family 28.5% / $440.90 28% / $439 28% / $335 32% / $392 26% / $341 30% / $330 25% / $286 34% / $574 28% / $495 7 Historical employee cost share 8 26.9% 28.6% 29.6% 28.7% 27.0% 26.0% 27.0% 27.7% 28.2% 28.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Actuals Planned/Projected Historical Employee Premium Increases As a reminder, the City implemented one plan beginning in 2016 and those that were on the Core Plan experienced an average 29.39% increase. 9 Enrollees Average rate increase Enrollees Average rate increase Enrollees Average rate increase 2013 574 0.0% 953 0.0% 1,527 0.0% 2014 635 22.4% 931 0.0% 1,566 9.1% 2015 532 30.2% 1,064 0.0% 1,596 10.1% 2016 - - 1,677 7.7% 1,677 7.7% CoreOverall Advantage Year Historical Medical / Rx Total Costs 10 $600 $900 $1,200 $1,500 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Historical Med/Rx Total Costs (PEPM) 2012 2013 2014 2015 2016 Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Change 2012 $ 868.74 $ 864.24 $ 845.39 $ 873.50 2013 $ 957.91 $ 929.07 $ 902.71 $ 946.16 8.3% 2014 $ 1,034.58 $ 989.50 $ 962.35 $ 965.13 2.0% 2015 $ 975.13 $ 1,034.23 $ 1,040.54 $ 1,062.48 10.1% - All yearly data illustrated on a CY basis (1/1 - 12/31) - Quarterly data is cumulative over the course of the year - Includes Medical / Rx / Fixed Costs - Accounts for any plan changes year to year Average City Trend Per Year (2012-2015): 6.7% Average Market Trend Per Year (2012-2015): 7.3% Costs represented are employee per month CityCare Statistics 11 0% 20% 40% 60% 80% 100% Utilization Patient Satisfaction Claims Trend Reduction 45% 90% 0% 37% 90.20% 1.90% 55% 90% 4% Year 1 Goal Year 1 Actual Year 2 Goal Affordable Care Act Statistics • 2015: 138 additional employees eligible that met requirements under Affordable Care Act (ACA) (120 enrolled: $1.6M) • 2016: 12 additional employees eligible that met requirements under ACA (6 enrolled: $77k) • ACA Mandatory Fees: • PCORI: $5800 (2014), $6600 (2015 estimated liability to be paid in July, 2016) • Reinsurance Fees: $232,631 (2014), $128,876 (2015) Important note: An additional 63 bus drivers enrolled that were changed from hourly to classified – not ACA related, but still affected medical costs 12 Future Opportunities and Focus • RFP Medical Carrier Review for 2017 Plan Year • Ongoing promotion for utilization of CityCare • Plan Design Analysis including copays, deductibles, coinsurance, out-of- pocket responsibility for employees • Fully-integrated Pharmacy Benefit Management System 13 14 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Kelly DiMartino, Assistant City Manager Jamie Heckman, HR Business & Technology Manager Date: July 18, 2016 SUBJECT FOR DISCUSSION Compensation Philosophy and Market Pricing EXECUTIVE SUMMARY (a brief paragraph or two that succinctly summarizes important points that are covered in more detail in the body of the AIS.) In 2014, the City of Fort Collins utilized a competitive bid process and contracted with Revolution Advisors to complete a Compensation and Career Progression Study. This study analyzed current compensation policies and programs, including how the City defines “market,” the job analysis system, and the current performance-based pay methodology. The Study identified opportunities for improvement to build a high-performing culture, improve employee engagement, increase clarity and efficiency, and enhance employee development and career options. In partnership with Revolution Advisors and based on their expertise, the City is recommending changes to the methodology used to determine the Pay Plan. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED (Work session questions should be designed to gather direction from Council without requiring Councilmembers to make a decision.) The purpose is to inform Councilmembers of the recommendations prior to market pricing and implementation. BACKGROUND/DISCUSSION (details of item – History, current policy, previous Council actions, alternatives or options, costs or benefits, considerations leading to staff conclusions, data and statistics, next steps, etc.) ATTACHMENTS (numbered Attachment 1, 2, 3,…) 1 Job Architecture Project Council Finance Committee: July 18, 2016 Agenda Objective: Review proposed changes to the methodology the City uses to determine pay structure. • Strategic Alignment • Compensation Philosophy Review • Next Steps / Q&A 2 Strategic Alignment STRATEGIC OBJECTIVE 7.3 Improve core Human Resource systems, develop a total reward system and address workforce planning and career development. 3 Compensation Philosophy The City’s compensation philosophy is to: • Attract and retain top talent • Remain market competitive with pay • Focus on Total Rewards not just base pay 4 Competition for Talent The competition for talent is real….. • “Colorado had the 10th lowest unemployment rate in the country” • US 5.3% • Colorado 3.9% • Fort Collins 3.6% • “Home prices are rising twice as fast as the national average”… 5 Source: • U.S. Bureau of Labor and Statistics, 2015 • COLORADOAN ANALYSIS, homes that sold more than once from 2009 to 2014 City Indicators of Market Scarcity 6 2013 2014 2015 Employee Turnover 6.13% 9.35% 11.13% New Hire Average Range Penetration 36% 38% 46% • Employee turnover rate has increased 81% since 2013 • The City is placing new hire employees 28% higher in the pay range since 2013 Source: City of Fort Collins Recommendations 7 • Move towards a market pricing strategy based on new hire trends in each Service Area • Leverage common dimensions of the market pricing strategy to include Organization Size, Public vs. Private mix, Geography • Expand survey sources to include Mercer OR Towers Watson • Increase the number of direct benchmarked jobs from 30% to 80% Implications to the City 8 • Increased rigor and data to drive pay decisions • More reliable and trusted market data • Expanded use of the pay range with criteria to guide decisions • Higher costs to purchase new surveys 2016 Timeline Mar Apr May Jun Jul Aug Sept Oct Nov Dec 9 Planning Job Mapping Market Pricing & Analysis Pay Plan Approval Questions 10 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Rich Shannon Date: July 18, 2017 SUBJECT FOR DISCUSSION Colorado Care Ballot Initiative EXECUTIVE SUMMARY (a brief paragraph or two that succinctly summarizes important points that are covered in more detail in the body of the AIS.) Representatives from ColoradoCare will be providing a brief presentation on Amendment 69, the proposal to create a single non-profit health coverage entity for Colorado. The question is on the Nov. 8, 2016 state wide ballot. It is described as a Medicare- for- all model of health coverage. The presentation will describe the benefits they see for the City, both financially (up to $8.5 million in savings per year, see attached) and from a management/organizational health perspective. They will also touch on the extended benefit they believe ColoradoCare will provide in terms of a healthier and better functioning community. ColoradoCare is asking the City Council to publically endorse Amendment 69. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED (Work session questions should be designed to gather direction from Council without requiring Councilmembers to make a decision.) ColoradoCare is asking the City Council to publically endorse Amendment 69. BACKGROUND/DISCUSSION (details of item – History, current policy, previous Council actions, alternatives or options, costs or benefits, considerations leading to staff conclusions, data and statistics, next steps, etc.) ATTACHMENTS Attachment 1 - CFC presentation for July 18, 2016 Attachment 2 - Fort Collins Savings Worksheet A single, non-profit health coverage entity Simple Affordable Covers Everyone* Saves Billions of Dollars 6/10/2016 1 *Including Part-Time Workers Colorado’s Version of Medicare-for-All www.coloradocare.org ACA Section 1332 States can request a waiver in 2017 6/10/2016 2 • If insurance is at least as comprehensive & affordable as ACA • If at least as many people are covered • Does not increase the federal deficit 6/10/2016 3 • Financial stability • Comprehensive benefits ColoradoCare will be evaluated by the Treasury and Department of Health and Human Services for “It is time to give the states a chance.” Tom Daschle (D) & Newt Gingrich (R) The Washington Post February 3, 2016 ColoradoCare: Covers Everyone, Saves Billions, For Colorado by Coloradans 6/10/2016 4 Health Care Reform • Significant financial savings • Predictable health care costs from year to year • Get out of the health insurance role 6/10/2016 5 Benefits for Employers • All employees are covered • Mental health is on par with physical health coverage (stress is the #1 wellness issue in the workforce) • Greater flexibility and mobility for employees 6/10/2016 6 Benefits for Employers Replaces the Medical Portion of Workers Compensation Insurance 6/10/2016 7 59% Cost Decrease ColoradoCare will Significantly Reduce Waste $765 B Wasted $2.8T Spent Annually Inst. of Med., 2012 National Data (27 %) 6/10/2016 8 ColoradoCare will Significantly Reduce Waste $2.8 T $210 $190 $55 $75 $105 $130 $765 Health Care Costs (Billions) Unnecessary Services Administrative Costs Missed Prevention Opportunities Fraud Excessive Prices Inefficient Delievery & Errors Institute of Medicine, 2012 $2.8 Trillion Annually 6/10/2016 9 Organizations providing health insurance are subsidizing organizations that do not provide insurance. 6/10/2016 10 6/10/2016 11 Self-insured organizations also pay for the waste in the current health care system. Comprehensive Benefits • Primary and specialty care • Hospitalization • Prescription drugs • Medical equipment • Mental health & substance abuse services • Emergency & urgent care • Preventive & wellness service 6/10/2016 12 • Chronic disease management • Rehabilitative services & devices • Pediatric care including oral, vision & hearing services • Laboratory services • Maternity & newborn care • Palliative & end-of- life care • Some adult oral health benefits Benefit Terms • No Insurance Premiums • No Deductibles • No Co-pays - on preventive and primary care • Your Choice of Provider • Covers Everyone 6/10/2016 13 ColoradoCare 6/10/2016 14 • Accountable - 21 member elected board • Transparent - everyone can see where the money is being spent • Serves the members, not stockholders. • Removed from partisan politics. Employees (including part-time) pay 3.33% * Employers will pay 6.67% of salary 6/10/2016 15 * Replacing your health care premiums and deductible Maximum taxable income $350,000 single, $450,000 couple On $50,000 annual Income 6/10/2016 16 Employers pays $278 monthly Employees pay $139 monthly On $100,000 annual Income Employers pays $556 monthly Employees pay $278 monthly Non-payroll and Self Employed Income May pay less than 10% of Personal income* 6/10/2016 17 *Is a deductible expense on federal and state taxes with an effective impact of 5.577% to 8.537% depending on your tax bracket if you itemize. • $25 billion in defined taxes is better than $30 billion in uncontrolled insurance premiums and deductibles • Health care taxes can only be increased by a vote of Colorado residents 6/10/2016 18 Meaningful Reform Happens • When financial incentives for families, doctors, hospitals and the paying entities are all in alignment • Not from excess regulation 6/10/2016 19 • Simplify • Cover everyone with Colorado version of Medicare -for-all • Take control back from the insurance companies 6/10/2016 20 Let’s Fix It The health insurance system is broken and too expensive. www.coloradocare.org Certain Component Units – an Amendment of GASB Statement No. 14 This Statement, issued January 2016, will be effective for the City beginning with its fiscal year ending December 31, 2017. The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirement for certain component units. This Statement establishes an additional blending requirement for the financial statement presentation of component units. This Statement applies to all state and local governments. This Statement applies to component units that are organized as not-for-profit corporations in which the primary government is the sole corporate member. This Statement does not apply to component units included in the financial reporting entity pursuant to the provision of Statement No. 39. This Statement amends Statement No. 14. uses a pavement condition index (PCI) which is a nationally recognized index, in order to compute the estimate. We tested the underlying information supporting this estimate and concluded that the estimate and the process used by management is reasonable. management reviews the actuarial results and considers the appropriateness of the assumptions used by the Plan. We analyzed management’s methodology, tested the underlying data, obtained the calculation and actuarial report and had an internal specialist review the significant assumptions and conclusions. We concluded that the process used by management and the estimates are reasonable. Other Postemployment Benefit Plan (OPEB) Assumptions The difference between the annual required contribution and actual contributions is recorded as a liability in the government-wide and proprietary fund financial statements of the City. The City utilizes the services of an actuary to determine the City’s annual required contribution. Management and the actuary determines the appropriateness of the actuarial assumptions to be utilized. The actuary’s calculation is reviewed and approved by management. We tested the information provided to the actuary and obtained the actuarial valuation report. We believe the estimates and processes used by management of the City are reasonable. to estimate the year-end liabilities include historical experience, general market experience and claims lag timing. An actuary is hired by the City to compute the year-end estimate and the results are reviewed by management. We tested the information provided to the actuary and obtained the actuarial reports. We believe the process used by management of the City and the estimates are reasonable. Fair Value of Investments The City records its investments at the estimated fair value. Investment securities are based on quoted market prices. We tested the proprietary of information underlying management’s estimates, including the use of a third-party independent pricing source. Based on our procedures, we conclude that management’s estimate is reasonable. management of the City, including the representation letter provided to us by management, are attached as Exhibit A.